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Life insurance is defined as a contract between you and an insurance company wherein you pay regular premiums, and in return, the insurer promises to provide a financial payout to your beneficiaries when you pass away. It's a way to ensure that your loved ones are financially protected and supported even if you're no longer there to provide for them, offering peace of mind and security for the future.
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Life insurance is a financial contract between 2 entities – a policyholder and the insurance company. In this contract, the policyholder pays regular premiums to the insurer in exchange for a death benefit that will be received by the assigned nominees post the policyholder’s sudden death. Life insurance policies also offer investment opportunities that allow you to save money for a secured future.
Let’s understand how life insurance works with the help of this example:
Rajeev, a 30 year-old man with no smoking/tobacco habits, buys a life insurance policy from Policybazaar.
Rajeev bought a protection plan with premium return benefit (Term Return of Premium policy) of 1 Crore life cover with policy term of 38 years. This means he will be covered until the age of 68 years and will pay Rs. 1,490/month for the entire policy term to keep the policy active.
In case of Rajeev’s unfortunate death during the policy term, the insurance company will pay a death benefit of Rs. 1 Crore to his nominees. This money can help cover living expenses, debts, and other financial needs of the nominees.
If Rajeev survives the entire policy term (i.e. 38 years), he will be returned all the premiums that he had paid so far (minus GST). This way, Rajeev not only get to protect his loved ones, but also gets back his money allowing him to save/invest further.
Term Plans
Now that we have discussed in detail the meaning of life insurance, it is also important that we understand the types of life insurance policies available for customers.
There are two types of life insurance plans:
Pure Protection
Savings Plan
Let’s understand them in detail:
Pure protection plans, also called Term insurance plans, are designed to provide financial protection to your family in case of your untimely death. These plans have lower premiums because they offer pure risk coverage without any savings or investment component. The premiums for regular term plans start at just Rs. 473/month for a 1 Crore term insurance cover. Here are the different types of term insurance plans available:
Whole Life Insurance: Covers you for your entire life, i.e. till 99/100 years of age.
Term Return of Premium: Provides dual-benefits, i.e. sum assured after death and returns back all paid premiums after maturity.
No Cost Term Insurance: Policyholders have the option to exit the term insurance plan at a specific life stage and get all the premium amount back that they paid.
Term insurance can be bought by anyone, provided they fulfill the criteria required to buy term plan. Usually, the different types of term insurance plans can be bought by the following specific categories of people:
*Note: You can also read what is life insurance in hindi.
*Note: You can calculate the premiums easily for term insurance using an online term insurance premium calculator.
Savings plans combine life insurance coverage with a savings or investment component to help achieve long-term financial goals. Savings plans help achieve financial goals, provide financial protection, and accumulate wealth over time. Here are the different types of savings plans available:
Endowment Policy: Offers the combined benefits of insurance cover and savings, where sum assured and accumulated bonus is paid back at the end of the policy term.
Money back Policy: Repays survival benefits periodically during the term of the plan. The benefits may or may not be guaranteed depending on the performance of funds (if any).
Retirement plans: Helps individuals secure their post-retirement life by saving funds throughout their earning years.
Unit Linked Insurance Plans (ULIPs): Goal-based financial product that is designed to provide both life insurance and wealth creation opportunities.
Child Insurance Policy: Mixture of insurance and investments that are designed to meet the rising education and other needs of children.
Now that we know the definition of life insurance and life insurance meaning, let’s discuss the factors that can affect the premium rates of life insurance plans:
Factor Affecting Life Insurance Premium Rates Factor Affecting Life Insurance Premium Rates
Age:
The life insurance premium rates are lower for younger individuals, and it gradually increases with age.
Gender:
As per various studies, females live longer than males. Thus, the life insurance premium rates are lower for females in comparison to males.
Medical Conditions:
Your past and present health status can determine the premium amount for your life insurance policy. In case you have any pre-existing diseases or have suffered from a disease in the last years that may affect your current health, you would be charged a higher premium rate.
Health history of family:
The probability of suffering from an illness that runs in your family is considerably higher. So, in case of any pre-existing diseases in your family history, you may have to pay a higher premium.
Drinking alcohol and smoking:
In life insurance meaning of lifestyle practices such as drinking alcohol and smoking can affect your health and lead to various health issues. Thus, insurers charge a high amount of premium for persons who drink alcohol or smoke.
Coverage type:
The type of life coverage you avail of can decrease or increase the premium of a life insurance plan. If you add term riders to your life insurance plan, the premium amounts would increase. A longer policy tenure also results in a higher amount of premium compared to a shorter policy tenure. Additionally, the type of plan you select also affects the premium rates like term insurance plan is the most economical and cost-effective form of life insurance.
Coverage amount:
What is life insurance coverage directly depends on the cover amount on your life insurance policy. This means, in life insurance meaning, a high amount of life cover would result in a higher premium amount.
Occupation:
Working in a high-risk job results in an increase in premium rates. For instance, if you work in a construction site or your work puts you at some risk, like chemical exposure, the insurer will charge a higher amount of premium.
To help you understand the meaning of life insurance better, here is a list of benefits of buying life insurance in India:
Financial Security: The most important benefit of life insurance is that it provides financial security to your loved ones after your death. The insurer provides the required life cover in exchange for premiums paid on a regular basis. The death benefit can help your family pay for funeral expenses, outstanding debts, and living expenses.
Wealth Creation: The life insurance plans provide protection against an eventuality along with the chance to create wealth in the long term. With these plans, you can take care of your future expenses, retirement, and beat inflation.
Free from Liabilities: A life Insurance plan gives your loved ones the power to be self-reliant and independent. A right life insurance plan helps them repay the liabilities such as home loans, personal loans, auto loans, or credit card loans. The term insurance plan also covers charges of hospitalization, treatment of critical illness, providing a comprehensive package of protection.
Acts as an Income Replacement: If you are the sole earning member of the family, a life insurance plan can provide you with a guaranteed income for your loved ones every month, thus, making sure that their daily lifestyle does not get disturbed and they remain financially stable.
Child’s Educational Future: The payouts from these plans help you to fund the educational costs of your children and also the expenses for their marriage or medical costs.
Tax Benefits: With life insurance plans, you can get life insurance tax benefits as per the prevailing tax laws under sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961.
Immediate expenses after death: It helps your loved ones cover a part of important expenses instantly after your death, such as medical bills or funeral costs.
Peace of mind: Knowing that your loved ones will be taken care of after your death can provide peace of mind for you and your family.
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Here are some of the points that you must keep in mind when you choose the right life insurance plan:
Know Your Goals: Different life insurance plans serve different purposes. Figure out what you want to achieve with your life insurance to choose the right type.
Check the Coverage: Think about how much money your family needs for daily expenses and future plans. Usually, it's best to pick a coverage that's 10 to 15 times your yearly income. You can also use a human life value calculator to see what's right.
Policy Length: There are many types of life insurance with different time limits. Choose one that matches your goals.
Extra Protections: Some life insurance plans let you add extra protections to the basic plan. These can increase your coverage and protect you in case of accidents, critical illnesses, or more.
Insurer's Reputation: Before you decide, make sure the insurance company is known for settling claims, being financially stable, and understand what's not covered.
Expert Advice: If you're not sure, talk to a financial advisor. They can help you choose the best life insurance for you and your family. You can contact Policybazaar’s Insurance Advisors to solve any insurance query or for customized suggestions.
Now you may be wondering what is life insurance purchase process is. You can buy the most suitable life insurance plans from Policybazaar. Policybazaar provides a series of the best life insurance plans depending on the customer’s needs and situation. You can compare from insurers and buy directly from the Policybazaar website and be assured of choosing the most appropriate plan for you. The steps to buy life insurance from Policybazaar are easy and mentioned below:
Step 1: Visit the Life Insurance page of Policybazaar
Step 2: Choose if you want to buy Term Insurance Plan or Investement Plan
Step 3: Fill in your details, like Name, Phone Number and DOB
Step 4: Next, fill in your Annual Income, Educational Qualification, Smoking Preferences, Occupation Type and Pin code
Step 5: Choose your most preferred plan among all the available plans from various insurance companies
Step 6: Fill in your details to buy the policy
Step 7: Proceed to payment with your preferred payment option
Insurer: In life insurance meaning of insurer is the insurance company that sells the life insurance policies.
Life Assured: The individual whose life is covered under the life insurance is called the life assured.
Life Cover: In life insurance meaning of life cover is the sum assured or the death benefit payable to the nominee of the policy, in case of the policyholder’s untimely death.
Maturity Benefit: The definition of life insurance maturity benefit is the amount payable to the policyholder in case they outlive the policy term.
Nominee: In life insurance meaning of a nominee is the person who is eligible to receive the life insurance benefit amount in case of the policyholder’s untimely death.
Policyholder: The Policyholder is the person who purchases the plan and regularly pays the premiums to keep the plan active. For example: If you purchased the plan for your mother, then you would be the policyholder, and your mother would be the life assured.
Policy Term: In life insurance meaning of policy term is the tenure for which the insurer promises to cover the life assured.
Premium: The amount paid by the policyholder to receive the required coverage for the entire policy term.
Premium Payment Term: In life insurance meaning of the premium payment term is the duration for which the policyholder needs to pay the premiums. The premiums can be paid in regular, limited, or single premium payment terms.
Now that we have understood what is life insurance and the meaning of life insurance, let us take a look at the importance of life insurance. Due to the innumerable benefits of life insurance like life protection, financial security, tax benefits, etc., it is one of the better decisions in life to purchase a suitable policy. Hence, you must firstly understand the definition of life insurance and then consider purchasing a life insurance policy so you can protect your loved ones against death and disability and secure them for a happy future.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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